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Tuesday, January 16, 2007

Venezuela:144 out of 157

The Conservative Heritage Foundation has released its 2007 survey. As expected Venezuela ranks low in freedom for business. And we can expect the situation to worsen as the latest Chavez announcements were done AFTER the organization had finished compiling its data.

Now, one can say whatever one wants about the Heritage gang, but they sure like to look at objective ways on how to place their bucks and it looks like Venezuela is not the place where to invest. In fact Venezuela is the only country in the bottom of the list which still has some trappings of democracy. Some being the key operator here, and when we look at our neighbors in the list, well, we can even question that "some": we are within ten positions from such luminaries as Algeria, Central African Republic, Vietnam, Laos, Sierra Leone, Syria, Belarus, Angola, Iran, Republic of Congo and Burma. In fact Venezuela falls in the category of repressed economies which dumps it next to Chavez favorite pals, Zimbabwe, Cuba, Lybia and North Korea. The only difference is that we are at the top of that select group. Clearly, economic freedom goes well with individual liberty and progress as can be seen from the top 20 of the list which include Chile at position 11. Uruguay, another "socialist country" does manage an honorable third LatAm ranking at position 33. Clearly the "socialist label" in a government is not necessarily a scarlet letter for the Heritage foundation. In fact two "right wing" countries of LatAm are EL Salvador (29) and Colombia (73). The Heritage Foundation cannot be accused anymore to be a political measurement tool: Venezuela business environment sucks and it is plain for all to see even if the growth of Venezuelan economy is on paper spectacular.

From the summary page of the survey we can access the Venezuelan page and get this very nifty graphic which is rather easy to comment on (an their general overview on Venezuela is quite to the point, I mean, 141 days to open a new business!).The only "freedom" where Venezuela reaches the world average is the fiscal one. That is, the tax burden is not too bad. Ask the top public officials in the Chavez administration who earn more than the CEO of private companies and do not pay too much taxes... No wonder taxes have not being going up as they are raking paychecks between 28 and 50 times the minimal wage of Venezuela. "¡Viva la revolución!".

Much, much more worrisome was the investment dismal score. No wonder the only investors of note in Venezuela were in the oil industry. After the Chavez new measures, well, they will be kicked out altogether. Will anyone come in to replace them?

The property rights index is another one that is sure to decrease next year, even if the government does pay out the CANTV share holders as promised.

Another index about to come down crashing is the already weak Labor Freedom. As the new laws such as LOCYMAT take hold, and as the labor code is revamped, it will become near impossible to fire a worker even if caught in lewd acts. Well, maybe in that case as drunkenness at work is not necessarily a sure way to get a worker fired...

In other words, the slight improvement shown by Venezuela in the past couple of years will become a new free fall where we are all but assured to have as our immediate neighbours Cuba, Zimbabwe, Lybia and North Korea. After Chavez rantings a week ago who in his right mind is going to come to build a new factory in Venezuela? Soon the government will be able to expropriate at will or force you to share management, property and benefits with the workers even though they will not even risk their severance and compensations even if they forced you to make unwise business decisions. Not to mention that there is talk to cap the maximum possible earnings while discussing a limit of business expenses that can be deducted.

There is something that these "stone age socialists" that preside over our fate fail to understand: people invest dirtectly in business only if their possible return is significantly above what they could get from putting their money in general stocks and funds. If I can place my hard earned savings at a Wall Street rate that could reach 10%, why would I place it in Venezuela for a lower rate, a lot of headaches, a 20% inflation and the distinct possibility to lose at least part of my captial?

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